Summary of a Recent
Judicial
Development in
Alternative Dispute Resolution
Arbitration Clause Not Incorporated into Contract Was Not Applicable
Walt McCarterNational AgLaw Center Research Associate
Summary of Decision
In Paramount Farms, Inc. v. Ventilex B.V., No. CV F 08-1027 LJO SMS, 2009 WL 161052 (E.D. Cal. Jan. 22, 2009), the United States District Court for the Eastern District of California held that there was no conclusive evidence that parties to a contract intended to incorporate a "general terms and conditions" section that included an arbitration clause into their contract; therefore, the court denied the defendant's request to compel the plaintiff to submit to arbitration rather than bring its breach of warranty claims in state court.
Background
Paramount Farms entered into a contract with Ventilex USA to purchase an almond pasteurization system, and the contract specified under the general terms and conditions that "[a]ll disputes arising out of or in connection with the contract shall be finally settled under the Rules of Arbitration of the International Chamber of Commerce." Id. at *2-3. Paramount subsequently claimed that the system "failed to perform as warranted," which forced it to pasteurize its almonds offsite at a cost of $68,000 per week and to purchase a replacement pasteurization system that cost over $1 million, and that Ventilex had failed to repair, redesign, or replace the system as promised. Id. at *3. Paramount Farms filed an arbitration demand with the American Arbitration Association (AAA) against Ventilex USA and its parent company Ventilex B.V. Id. Paramount filed this action against Ventilex B.V. in state court and later withdrew its AAA arbitration claims, and Ventilex B.V. moved for dismissal. Id. at *3-4.
Arguments
Ventilex B.V. argued that it was not a party to the contract between Paramount and Ventilex USA, and therefore Paramount's breach of contract and warranty claims against it should be dismissed. Id. at *5. Ventilex B.V. alternatively argued that the claims should be arbitrated pursuant to the arbitration provision in the general terms and conditions of the contract. Id. at *10.
Paramount argued that Ventilex B.V. was a party to the contract because it manufactured and shipped the system pursuant to the contract, provided specific guarantees under the contract, bound to perform specific obligations under the contract, and was an agent of signatory Ventilex USA. Id. at *5. It also argued that it was not bound by the arbitration clause in the general terms and conditions because the contract did not incorporate the general terms and conditions, which it claimed were unauthenticated and were not provided to it until Ventilex B.V. filed its motion to dismiss. Id. at *10.
Analysis and Holdings
The court noted that Ventilex B.V. was referenced in various places throughout the contract and incorporated documents, and stated that it could not conclude that Ventilex B.V. was not a party to the agreement with Paramount regarding the system; therefore, the court denied Ventilex B.V.'s motion to dismiss the claims for breach of contract, breach of express warranty, and breach of implied covenant of good faith and fair dealing. Id. at *5-8. The court likewise noted that the complaint and other documents pointed to links in a chain in the distribution of the system to Paramount Farms, and it held that Ventilex B.V. had not conclusively established an absence of vertical privity to defeat Paramount Farms' breach of implied warranty claims. Id. at *8. The court further found no conclusive evidence that Ventilex B.V. and Paramount agreed to arbitrate their disputes, given the uncertain status of the general terms and conditions section proffered by Ventilex B.V., and therefore the court denied Ventilex B.V.'s request to compel Paramount to submit to arbitration. Id. at *10-12.
The case was decided on January 22, 2009.